January - 2005

In late January, the Ft. Worth Star-Telegram published a story about the tough times DFW was facing.

D/FW loses its bet on airline industry recovery

D/FW AIRPORT - In the days after Sept. 11, 2001, D/FW officials gambled. As some airports cut back, D/FW pushed forward with its $2.7 billion expansion. In doing so, it rolled the dice, betting that the airlines would stabilize and that the industry would quickly recover.

Neither happened. Now Dallas/Fort Worth Airport faces the toughest times in its 30-year history.

According to the article, these were just some of the problems that DFW was facing.

• The $1 billion, 2-million-square-foot Terminal D, which opens in July, increases terminal space by 52 percent, but it is not fully leased.

• This year's operational budget is $494.1 million, up 50 percent from last year. Net debt service and mandatory reserves account for nearly half the budget.

• Energy costs are doubling this year.

• Debt, held below $700 million before the Terminal D expansion, is more than $3.8 billion.

• D/FW's low cost to airlines -- its biggest selling point in attracting carriers -- will more than double by 2009, according to airport consultant Leigh Fischer.

• Most of what would have been Delta's share of the debt payments will probably fall on American in the form of higher landing fees and charges.

• The Wright Amendment, which limits growth at rival Dallas Love Field, is under siege. Southwest Airlines' attempts to start long-haul service at Dallas Love Field could siphon additional revenues from D/FW.

American Airlines said of D/FW's expansion: "This financing was put in place with the full belief that the Wright Amendment would be in place."

While that may be true, DFW officials also admit they wouldn't have considered building Terminal D if they suspected Delta was leaving; instead, they would be remodeling Terminal E.

DFW was anxious to lease Delta's 24 gates which would be vacant effective February 1, 2005. So on January. 6, DFW unveiled a multi-million dollar incentive and stimulus package that was marketed to all major U.S. air carriers. Under the terms of the plan DFW would:

• provide free terminal rent to the carrier for one year,

• purchase all required ground service equipment and provide it free of charge for the first year.

• make any necessary facility improvements to Terminal E, with a minimum investment of $4M and up to $6M if all 22 gates are leased.

• and bolster cooperative marketing funds under its Carrier Support Program for new service previously unserved by the carrier from DFW, with up to $1M a year in eligible funds.

To be eligible for these benefits, an airline had to agree to

• lease a minimum of 10 gates in the first year of operation and commit to this level of service through 2009.

• meet certain departure levels, based on the number of gates leased, (approximately 8 departures per gate) by the end of the first year,

• and dedicate at least 70% of new seats to markets listed in DFW's Top 50 destinations and currently not served by the airline from DFW.

DFW planned to pay for the incentive package by using its discretionary funds or other authorized and eligible bond funds that were available.

The announcement was coupled with a statement that DFW and Delta had reached an agreement where DFW would regain control of 24 of Delta's gates in Terminal E in exchange for a payment to Delta for $7 million.

Even though Delta owed millions in rent, DFW executives believed they could lease a large block of gates, if they had control and handled the marketing themselves.

In return for relinquishing the gates, Delta - who had previously held leases for the gates that ran through the end of 2009 - was released from payment of future rents, fees and charges on these facilities. The airport's $7 million payment to Delta reimbursed costs Delta incurred to make physical improvements to Terminal E and to consolidate its operations to four gates.

"This is an outstanding financial package and an unprecedented opportunity for a carrier to provide new or expanded service in our very strong Dallas-Fort Worth travel market,"� said Max Wells, Chairman of the DFW Airport Board.

"It is a bold initiative that signals the Airport will continue to compete aggressively to bring more choices to our customers. And in today's airline market, it's a great business deal and a win-win for the Airport, our customers and the carrier."�

The incentive package was open to any qualified U.S. carrier and was sent to more than 40 airlines. Interestingly, one of the airlines that received the offer was American.

Under the terms of the agreement, they weren't even eligible. The agreement required the accepting airline to devote 70% of all new seats to markets listed in DFW's Top 50 destinations and currently not served by the airline from DFW.

Apparently no one bothered to remind DFW officials that their flagship carrier already flew to DFW's top 50 markets, and therefore, was ineligible.

Never willing to take "No" for an answer DFW officials also sent the offer to Southwest. By this time, Southwest had decided to stay at Love Field and fight Wright rather than move some or all of their operations to DFW.

Besides, the plan DFW was offering up would require Southwest to operate a minimum of 80 daily departures by the end of the first year. Up to that time, their fastest growing station had been Philadelphia and there, Southwest had only 45 daily departures at the end of their first year there. They'd have to grow DFW twice as fast and that's simply not Southwest's style.

None of the other airlines were interested, either. America West, jetBlue, Spirit, and AirTran all passed on the deal, as did the other legacy carriers. Who in their right mind would want to compete in any meaningful way with American Airlines at its largest hub, while helping to subsidize DFW's expensive improvements constructed primarily for AA's benefit?

More than a year later, most of Delta's gates remain vacant. Sometimes an "outstanding business opportunity" isn't so outstanding once you start reading the fine print.

Tune - Help
The Beatles

(Sung by DFW Administration)

Help, we need an airline
Help, not just any airline
Help, we need a big strong airline,
HELP!

When things were better -
So much better than today -
We spent like drunken sailors -
Then went on our merry way!
But now those days are gone -
'Cause Delta's leavin' town -
Now we find we're in a bind
Our revenue is down.

So we must decide what we shoud do
To bring more airlines to D-F-W
We must think of something that's brand new
We need more re-ve-nue!

So we came up with this
Great new incentive plan
We really think that this might work
(At least we hope it can)
Just lease a bunch of gates
The first year's rent is free
Just as long as you agree
To ex-pand ra-pid-ly

Who will be the lucky new airline?
To commit to stay until 2009?
Accept our deal and sign the dotted line?
Oh now who will it be?

We sent our offer out
But no one called us back
The other airlines didn't want
To pick up Delta's slack.
AirTran passsed up the deal
A-me-ri-ca West, too,
Frontier wasn't interested
And neither was jetBlue.

And so in our un-re-lent-less quest,
D-F-Dubya sent the offer to Southwest
They said "Dallas Love Field suits us best.
So we'll stay - we won't go
Thanks, though, but no - (no, no)